Partner Communication Co. (PTNR) is trading at the smallest discount to its biggest competitor in 15 months on bets Hutchison Whampoa Ltd. (13)’s return as a shareholder will boost earnings for Israel’s second-largest mobile-phone company.
Partner gained more than 10 percent in New York and Tel Aviv this week after billionaire Li Ka-shing’s Hutchison agreed to buy a stake in the company. The advance sent valuations to 5.5 times estimated earnings, narrowing the discount versus Cellcom Israel Ltd. (CEL), the country’s largest mobile-phone company by the most since Feb. 27, 2011. The Bloomberg Israel-US Equity Index (ISRA25BN) of the biggest New York-traded Israeli companies added 1.2 percent to 80.49 yesterday.
Hutchison and the Li Ka-Shing Foundation will pay $125 million for 75 percent of Scailex Corp., which owns a 44.5 percent stake in Partner, the Hong Kong-based company said yesterday. Partner shares have slumped almost three quarters since Scailex agreed to buy a 51 percent stake in Partner from Hutchison in August 2009, as the government stepped up efforts to boost competition in the mobile market.
“The new owner being a global corporation with deep pockets is a catalyst to change the direction of the way these companies have been valued,” Zach Herzog, head of international sales at Psagot Investment House Ltd., said by phone from Tel Aviv yesterday. “Partner is changing the trend and it will continue. The company will close the gap and eventually take over.”
The Israel-US Equity Index has declined 0.9 percent this year, compared with a retreat of 1.5 percent for Israel’s TA-25 (TA-25) benchmark gauge. The Israeli index gained 1.3 percent to 1,069.64 at the close in Tel Aviv.
Shares of Partner declined 0.6 percent to $4.96 in New York trading (PTNR:US) yesterday, paring its gain to 10 percent this week. The Tel Aviv stock dropped 5.2 percent today to 18.4 shekels, the equivalent of $4.72.
The Rosh Ha’Ayin, Israel-based company’s Israeli stock is valued at 5.2 times estimated earnings compared with 5.5 times for Cellcom. (CEL:US) Partner was trading at a discount of as much as 26 percent on Sept. 15.
Hutchison invests in ports, telecommunications ventures, retail, property and energy producers. The deal to buy a stake in Scailex, Partner’s biggest shareholder, is subject to regulatory and other approval, the Hong Kong-based company said in a statement yesterday.
Li, worth $20.7 billion, is the 20th richest person in the world, according to the Bloomberg Billionaire Index.
‘Sense of Stability’
“This is all a positive because it puts Partner in a much stronger financial position and turns some sense of stability toward it,” Richard Gussow, senior analyst at DS Securities & Investments Ltd., said by phone from Tel Aviv yesterday. “It’s an opportunity for them to move past the difficult situation the telecoms have been in.”
Partner tumbled 56 percent in New York last year, lagging behind Cellcom’s 48 percent drop and the Bloomberg US-Israel Index’s 32 percent retreat.
The company said first-quarter net-income dropped 43 percent to 146 million shekels ($38 million) from 254 million shekels a year earlier, according to a statement filed with the Tel Aviv Stock Exchange on May 23.
Profit declined in the last five quarters as the government has forced telecommunication providers to cut fees and encouraged new players to enter the market. Golan Telecom and Hot Telecommunication System Ltd. (HOT) started offering low-priced wireless services last month.
The Hutchison stake means Partner may be able to invest “in new services that it needs to in order compete with new players and improve profitability,” Gussow said.
The company will probably say sales fell 16 percent to $1.6 billion shekels in the second quarter, according to the median estimate of two analysts surveyed by Bloomberg.
Israel, whose population of 7.8 million is similar in size to Switzerland’s, has about 60 companies trading on the Nasdaq Stock Market, the most of any nation outside the U.S. after China. The country is also home to more startup companies per capita than the U.S.
SodaStream International Ltd. (SODA:US), the Israeli maker of at home soda machines, rose 5.3 percent to $33.67, the highest level since May 14.
The company said June 4 that it would begin developing co- branded soda makers with Breville Group, an Australian designer of consumer appliances. Products will be available for sale in 2013.
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